Bloomberg News December 17, 2001
U.S. Cancels Navy Missile Defense Program Led by Raytheon
Jonathan Berr
Washington, Dec. 17 (Bloomberg) -- The U.S. Department of Defense said it canceled a Navy missile defense program on Friday that Raytheon Co. was the main contractor on because the system was over budget and behind schedule. The government had spent $2.35 billion of the estimated $9.1 billion budgeted for the program, known as the Navy Area Wide Missile Defense. The agency is in talks with Raytheon and its subcontractors about possible cancellation fees, said Cheryl Irwin, a Pentagon spokeswoman. She wasn't more specific.
The program was shut amid poor performance and 50 percent cost overruns, analysts said. The action came a day after President George W. Bush told Russia that the U.S. would withdraw from the 1972 Anti-Ballistic Missile Treaty so it can conduct more tests for a proposed missile-defense shield. The program could be restructured or the contract renegotiated, analysts said.
``This is not the first missile defense program that has been ``canceled,''' said John Pike, head of Globalsecurity.org, a defense policy group based in Washington.
Raytheon, the largest maker of missiles, is working toward a ``reasonable way to go forward'' with the program, said Sara Hammond, a spokeswoman. She declined to be more specific.
Pentagon officials rarely cancel weapons programs and when they do, they have encountered stiff resistance from contractors. Boeing Co. and General Dynamics Corp. are appealing a federal court ruling that threw out their $2 billion claim for canceling the A-12 stealth aircraft a decade ago.
The termination is a blow to Lexington, Massachusetts-based Raytheon, which is being hurt by a decline in commercial aircraft and electronics sales, said Win Murray, an analyst with Liberty Funds Group, which owns shares of Raytheon.
``Raytheon still has some operational fixes to implement,'' he said. ``It doesn't look like it's going to hit the earnings more than two cents.''
Department of Defense officials are going to meet next month with executives from Raytheon and its partners in the program, Lockheed Martin Corp., L-3 Communications Holdings Inc. and United Defense Inc., Irwin said.
The ship-based targeting computers were not working well enough with the Aegis radar systems on missile cruisers, the New York Times reported. Those radars were designed to track airplanes, which are larger, slower and generally easier to follow than missiles, the newspaper said.
Lockheed Marin Corp. spokesman Tom Jurkowsky said the electronics systems and software it developed for the Navy program will be used in other missile defense systems.
Shares of Raytheon fell $1.20 to $30.95. The stock has risen 7.2 percent in the past year.
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